Real Estate Taxes & Insurance
Your escrow savings account, and what to expect after your home purchase.
Tax and insurance escrows are not the most exciting parts of purchasing a new home…because of this, many loan officers don’t take the time to educate their home buyers on how these accounts affect their monthly payments. The misconception is that monthly payments will remain the same throughout the full term of a loan. This is true for the loan’s principle and interest portions of the payment if it is on a fixed interest rate. However, this is often not the case for the taxes and insurance collected as part of their monthly payment.
A buyer’s escrow savings account is opened at the time of purchase, from a collection of money you pay at settlement. This covers your tax and insurance amounts that were determined when you closed. This account is a combination of accounting for the accruement of money from each payment you will be making monthly and it is set up with the expectation that the balance will be sufficient to pay the yearly taxes and insurance when they come due. The initial savings balance includes an excess amount equal to two months of the last billed annual taxes and your home insurance policy.
When the account is billed for payment of the taxes and insurance the balance is expected to hold 14 months of the previous year’s billed amount. This two-month cushion is expected to prevent a shortage of the escrow savings account when the current billings are paid. The amount that is collected from you each month as a part of your mortgage payment is 1/12 of the full billing amount. When the mortgage lender service company does their annual balancing of your escrow savings account–which are typically done after both your taxes and insurance have been paid for the year–they will adjust your monthly payment again based on the 1/12 of the amount that was paid and add any recoupment needed to fully refund the two-month cushion back to the savings account.
There are some instances when the taxes or insurance amounts increase enough that it leaves the escrow savings account in a negative balance. If this happens, the mortgage lender is expected to mail you a single statement notification providing you two choices. 1) Pay the amount in full to return the account to the required balance; 2) split the balance out over 12 payments and add it to a new adjusted monthly payment. If you don’t respond to the statement they will automatically adjust your payment to include the collection of the shortage. This is commonly the case when homeowners call their lender, feeling blindsided by an increase in their mortgage payment.
How are property taxes billed here in Brevard County? They are paid one time annually, and Brevard County even provides a discount if they are paid early. The earliest available pay date is November 30th. The mortgage lender will disburse payments of the property taxes for the earliest payment date from the funds held in the escrow account. If you closed on your home purchase from January 1st to October 30th prior to the official release of the new billing of the taxes, the bill paid in the same year of your closing will essentially be the seller’s bill, even though you have ownership of the home at this point. Generally, this first bill will be similar in cost to the prior annual bill. The year after your purchase is when the county will re-assess the taxable value of the property and when most people experience the largest increase to their taxes.
For additional questions about Escrows or any mortgage-related questions please contact Mortgage Lender, Christine Danielson:
Christine Danielson is an accomplished branch manager who has assembled one of the top-performing teams in the mortgage industry. The commitment she has shown to perfecting the lending experience was instrumental in The Mortgage Firm’s nationwide top ten ranking in client satisfaction. Christine’s philosophy: putting her clients first. This idea has built the company into Brevard County’s #1 purchase mortgage lender. Christine feels honored to have qualified for The Mortgage Firm’s Circle of Champions, recognizing elite performers operating at the highest level, for four years in a row.
Supreme Title makes no representations or warranties with respect to the accuracy or completeness of the matters addressed.
Please contact Supreme Title with questions you may have.
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